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Global Supply Chain News: Will Boom Times Continue for Ocean Container Carriers?

 

Up Cycle and High Rates to Continue through 2022, Drewry Predicts

 

 

May 11, 2021
SCDigest Editorial Staff

After concerns of looming financial disaster for ocean container carriers in Q2 2020, when it appeared the pandemic crisis would crush global trade volumes, it been good, better and great times for box movers, with profits levels not seen for years in a sector known at least since 2008 for its challenging economics.

Supply Chain Digest Says...

 

It also thinks 2022 will be a good year for container carriers, thanks to favorable supply and demand growth trends, combined with skillful capacity management.

 
 

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As the analysts at Drewry recently noted, “The progression of quarterly carrier operating profits in 2020 was exponential with a near doubling in each proceeding three-month window. Subsequently, the end-year result was the best industry performance that Drewry has records for at an estimated $26.6 billion, with an operating margin of 13.0%.


That profit surge is illustrated in the chart from Drewry below, which tracks quarterly profits and profit margins in the container sector, showing the carriers’ bottom lines taking off in Q3 of last year, after minimal profits and even industry losses data back to early 2017, and in reality previous to that.


Can those good times for carriers, and by default bad times for ocean shippers in the form of higher rates, continue on?


They certainly did in Q1 or this year. Giant Maersk Line said in its Q1 earnings call that container freight rates were up 36% in Q1 versus the first quarter of 2020. Those frothy rates combined with a surge in volumes saw Maersk revenues rise 30% to $12.44 billion, while profits jumped to a $2.7 billion, up from just $197 million in the first quarter of last year.


Maersk CEO Soren Skou said he expects the great economic times for container ships that began last summer will continue until the end of 2021 at minimum.


Drewry agrees, writing that “Using history as the only guide, the smart bet would be to think that the market will cool down fairly quickly, but these are not normal times," adding that “We argue that carriers are set up nicely for at least another two very profitable years.”

 

 

Ocean Container Carriers Profits and Margin % by Quarter

 

 


(See More Below

CATEGORY SPONSOR: SOFTEON

 

 

 

 

Drewry says there were two key factors driving rates and volumes higher:


1. A demand surge caused by a pandemic-driven shift in consumption habits towards goods


2. Supply chain disruption that reduced port productivity and restricted capacity from the market


Drewry notes that “These factors are stubbornly refusing to go away and the timeline for a “return to normal” keeps getting pushed back.”


With higher contract rates, Drewry says “another highly profitable year is virtually guaranteed,” with carrier profitability records likely to set records once again in 2021.


It also thinks 2022 will be a good year for container carriers, thanks to favorable supply and demand growth trends, combined  with skillful capacity management.


Beyond that it is of course difficult to predict. Carriers are once again buying more ships, lots more: Just in Q4 2020, the volume of new ship orders was more than three times that of the previous nine months, and contracts signed just so far in 2021 are already far in excess of the 2020 full-year tally, with ships on order for a staggering 1.45 million TEU worth of capacity booked in just the first quarter, Drewry says.

Eventually, supply and demand will be impacted as all these new ships are delivered.


The bottom line, says Drewry: “Ocean carriers look set for a prolonged and unprecedented upcycle, which will enable them to improve their financial health, reward investors and spend more. However, if accelerated ship orders continue, there is a risk of a return to over-capacity that will shorten the cycle.”


What are your thoughts on ocean carriers? How long will the good times continue? Let us know your thoughts at the Feedback section below

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